Correlation Between Microsoft and Rackla Metals

Can any of the company-specific risk be diversified away by investing in both Microsoft and Rackla Metals at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Microsoft and Rackla Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft and Rackla Metals, you can compare the effects of market volatilities on Microsoft and Rackla Metals and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Microsoft with a short position of Rackla Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Rackla Metals.

Diversification Opportunities for Microsoft and Rackla Metals

0.25

Correlation Coefficient

Microsoft  Rackla Metals

Modest diversification

The 3 months correlation between Microsoft and Rackla is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Rackla Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rackla Metals and Microsoft is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Microsoft are associated (or correlated) with Rackla Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rackla Metals has no effect on the direction of Microsoft i.e., Microsoft and Rackla Metals go up and down completely randomly.

Pair Corralation between Microsoft and Rackla Metals

Given the investment horizon of 90 days Microsoft is expected to generate 25.91 times less return on investment than Rackla Metals. But when comparing it to its historical volatility, Microsoft is 7.68 times less risky than Rackla Metals. It trades about 0.05 of its potential returns per unit of risk. Rackla Metals is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  6.50  in Rackla Metals on September 3, 2024 and sell it today you would earn a total of  7.50  from holding Rackla Metals or generate 115.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Microsoft  vs.  Rackla Metals

Microsoft

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Rackla Metals

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rackla Metals are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Rackla Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microsoft and Rackla Metals

The main advantage of trading using opposite Microsoft and Rackla Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Rackla Metals can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Rackla Metals will offset losses from the drop in Rackla Metals' long position.

The idea behind Microsoft and Rackla Metals pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.